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 Jerry Rhinehart, CIC, CLU, ChFC, RHU Panama City, FL

Estate Planning Techniques: Gifts, Trusts and Life Insurance.  Jerry Rhinehart, CIC, CLU, ChFC, RHU Panama City, FL. 1. Learning Objectives.  To understand the importance of Estate Planning and the various options available .

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 Jerry Rhinehart, CIC, CLU, ChFC, RHU Panama City, FL

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  1. Estate Planning Techniques: Gifts, Trusts and Life Insurance  Jerry Rhinehart, CIC, CLU, ChFC, RHU Panama City, FL

  2. 1 Learning Objectives To understand the importance of Estate Planning and the various options available. To be familiar with the usual misconceptions, or “Myths”, of Estate Planning. To know the law and advantages of gifting.

  3. 1 Learning Objectives To understand the application, benefits and use of various trusts in Estate Planning.  Living Trust  Charitable Remainder Trust  Testamentary Trust

  4. 2 Please note the DISCLAIMER

  5. 2 The History of Estate Tax

  6. 3 The Importance of Estate Planning The Judge said... The impact of the Federal Estate Tax

  7. 3 The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! High Federal Estate Tax (FET)

  8. $5,000,000 (2011 & 2012) 35% Payable in 9 Months Payable in Cash! Know This Regarding FET...

  9. 3 The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! High Federal Estate Tax (FET) HighProbateCost Delays in Settlement

  10. 4 The Importance of Estate Planning Some “famous people” have done a good job of estate planning and some...

  11. 4 Estates of Well-Known People

  12. 4 Elvis Aaron Presley — 1936-1977 Would you have “wasted your time” calling on Elvis for his estate planning? Did Elvis (or his manager) do a “good job” of estate planning? 73% erosion of his “stuff”. Seven years delay in settlement.

  13. Remember Elvis

  14. Dan Duncan (Houston, TX) – Died March, 2010. He was listed as #74 on Forbes Wealthiest (@$9 Billion). Married, 4 adult kids. Supposedly had used various Trusts and Charitable techniques to avoid greater than $2 Billion in taxes.

  15. George Steinbrenner (“The Boss”) – World Series Win - 2000

  16. 3 The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! High Federal Estate Tax (FET) High Probate Cost Delays in Settlement Low (or no) FET Reduced (or no) Probate Prompt Settlement

  17. 3 The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! Possible liquidity problems for loved ones! Ample cash flow to pay taxes, debts, and provide an income for the life of your spouse!

  18. 3 The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! Tough decisions to be made by loved-ones — probably not trained for such a task... Pre-determined decisions that treat loved-ones, benefi- ciaries, charities, employees, etc., based exactly on your wishes!

  19. Basic Truths in Estate Planning  You cannot die without a will!

  20. 6 Basic Truths in Estate Planning  Just what is a will?  What are the advantages of a will?  How does a will work?  Is it the only “legal document” most people need?

  21. Basic Truths in Estate Planning  You cannot die without a will! Everybody has an Estate Plan!

  22. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)

  23. 5 Myths Concerning a Will Allows me to avoids probate Will save me estate taxes My loved ones will be treated equally I told my kids how to distribute my possessions … My business is very successful…

  24. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)   “I’m not rich” (life insurance)

  25. “Stuff” For Estate Calculation Any FET Due in 2012? 5,500,000 -700,000 4,800,000

  26. “Stuff” For Estate Calculation Net Estate: 4,800,000 Personal Life Insurance (Owned): 1,000,000 Group Life Insurance 100,000 Travel Accident 100,000 Total Life Insurance 1,200,000 Is Life Insurance "Stuff"?

  27. “Stuff” For Estate Calculation Non-Life Insurance “Stuff” 4,800,000 Life Insurance “Stuff” 1,200,000 Total 6,000,000 Less Year 2012 “Freebie” -5,000,000 Total Subject to FET 1,000,000 FET Owed (@35%) 350,000

  28. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)   “I’m not rich” (life insurance)   “I’ll worry about it later”

  29. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)   “I’m not rich” (life insurance)   “I’ll worry about it later”  “I don’t have to do anything to get the tax breaks that are available” 

  30. 7 What About your Wealthy Clients? “The sale would give the Robbies cash to pay off an estate tax bill of about $47 million.” U.S. Today - March 24, 1993

  31. 7 The Rules of the Game  $5,000,000 Exemption (2011 & 2012)  35% FET rate (2011 & 2012 / (per person)  Possible 5% probate expense  FET due in 9 months (exceptions exist)  CASH – The IRS wants it!  7 years – possible delays

  32. 7 What About a Liquidity Problem?  “The Great Garage Sale”  “The Dreaded Discount Buyer”

  33. Cash Business Real Pensions Farm Estate Life Personal Property Insurance For Your “Stuff” Death Taxes Probate Fees Accounting Fees Legal Fees Appraiser’s Fees Executor’s Fee Balance to Heirs 8 8

  34. $300,000 $100,000 $250,000 IRS Hose A View of Your “Stuff” - 2012 $1,000,000 $4,000,000 $5,650,000

  35. 9 Who Are Your Heirs? OTHER LOVE HATE Mary - daughter John - son Will - son Will, Jr. - G-son Sara (CPA) Barry (atty) IRS Dreaded Discount Buyer Church University Hospital

  36. 10 The News... Bad News Ugly News Good News 9 Months 35% - 50% Cash Dreaded Discount Buyer • You’re alive • You have an Estate Plan • Correctable Q-Plans (401k) $1,000,000 2 - Good Deals 2 - Bad Deals 40% (-400K) 600K "Stuff"

  37. "Do You Have The Letter?"

  38. 11 The Use of Gifts Why Give Away Your “Stuff”?  Reduce current estate size / tax  Enjoyment of the donor  Fund life insurance trust  Gifts to a charity / individuals  Future appreciation to another

  39. 12 What if You Can Not Prove Your Cost Basis? The IRS rules state that without proof of basis — then your basis is ZERO! (Thus ALL gain!)

  40. 12 Intel, Inc. Basis - $1,000 FMV - $10,000 You Sell the stock You Give the stock away during your lifetime The stock is Transferred at your death

  41. Intel, Inc. Basis - $1,000 FMV - $10,000 You Sell the stock - 10,000 - 1,000 = 9,000 x 15% Capital Gains Tax -- $1,350 Tax

  42. Intel, Inc. Basis - $1,000 FMV - $10,000 You Give away the stock (during your life time) 10,000 - 1,000 = 9,000 x 15% Capital Gains Tax -- $1,350 Tax to Seller

  43. Intel, Inc. Basis - $1,000 FMV - $10,000 The stock is Transferred to another person at your death 10,000 - 10,000 (step-up-in basis) = - 0 - No Tax to the Seller

  44. 13 The Use of Gifts  An unlimited amount can be given to a college or medical facility for the benefit of anyone!  Three year rule  Excess gifts — $13,000 maximum / “completed gift” (present interest)  An unlimited amount can be gifted between husband / wife

  45. Bank Parties of a Trust  Trustee  Grantor  Beneficiaries

  46. 13 Irrevocable Life Insurance Trust (ILIT)  Why is this Trust beneficial for a husband and wife that have an Estate Tax problem?  How does an ILIT work?

  47.  Crummey Withdrawal Notice Annual Gifts Trust Grantor  Assets Distributed   Premium Paid Death Benefit Insurance Company  Provides Estate Liquidity Grantor’s Estate 14 Irrevocable Life Insurance Trust in Action Trust Beneficiaries

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